Income Distribution:Household Income
In real terms, equivalised disposable household income for all Australians, on average, increased by 12% between 1994-95 and 2000-01.

The economic wellbeing of people is largely determined by their command over economic resources. For most households, these economic resources are primarily derived from income received by household members (e.g. in the form of wages and salaries, investment income or income support from government). Over time, the type of income received by the members of a household may vary as their life circumstances change; for example, as they move into and out of the labour force.

At times, households may need to draw upon savings and other forms of accumulated wealth, if available. Also, when needed, services provided by the government and welfare organisations, and/or resources provided by family and friends, may contribute to the resources available to a household. However, for most people for most of their lives, income remains the main economic resource available to them.

In this article, the discussion of recent trends focuses on the growth and distribution of equivalised disposable household income for three groups of Australians - those in low, middle and high income groups (see the definition on this page.) Elsewhere in the article, the analysis focuses on the households to which these people belong, or on households at different life cycle stages. For example, principal source of income and home ownership relate to the households in which people live, rather than to the people themselves, so that these discussions focus on the proportions of households with particular characteristics.

AVERAGE REAL EQUIVALISED DISPOSABLE HOUSEHOLD INCOME

HOUSEHOLD INCOME

Income data in this article are drawn from the Surveys of Income and Housing (SIH) conducted between 1994-95 and 2000-01.

Gross income comprises regular receipts from employment and investments, and pensions and similar transfers from government, private institutions and other households. Disposable incomeis derived by deducting estimates of personal income tax and the Medicare levy from gross income.

Equivalised disposable household income is a standardised income measure, adjusted for the different income needs of households of different size and composition. It takes into account the greater income needs of larger households and the economies of scale achieved when people live together. For a lone-person household, it is equal to disposable household income. For a household comprising more than one person, it indicates the disposable household income that would need to be received by a lone-person household to achieve the same level of economic wellbeing as a household comprising more than one person. See also Household Income and Income Distribution, Australia, 2000-01 (ABS cat. no. 6523.0).

This article focuses on people from low, middle and high income groups. These have been formed by grouping people together after they have been ranked according to their equivalised disposable household income. People in the low income group comprise 20% of people with equivalised household incomes in the second and third deciles; the middle income group, in the fifth and sixth deciles; and the high income group, in the ninth and tenth deciles. Defined in this way, these three groupings cover approximately 60% of all Australians, spread across the income spectrum.

Results in this article are not directly comparable to those in ‘The geography of income distribution’ in Australian Social Trends 2003, as the analysis of geographical detail in that article required the use of some different concepts and data sources.

RECENT TRENDS IN INCOME

In 2000-01, there were approximately 18.9 million people living in private dwellings in Australia. They comprised about 7.3 million households. In real terms, equivalised disposable household income for Australians of all ages increased by an average of 12% between 1994-95 and 2000-01. Over the same period, the average real equivalised disposable household income of people in the low income group grew by 8%, while the increases for people in the middle income and high income groups were 11% and 14%, respectively.

In 2000-01, the average equivalised disposable household income of people in high income households was $903 - more than three times the average for those in low income households ($245). Thus, a person living on his/her own would require $245 per week after tax to maintain the same standard of living as people in low income households, but $903 to maintain the same standard of living as people in high income households.

The share of total income received by people in the low income group in 2000-01 was 10.5%, compared with 38.5% for those in the high income group. The share received by low income people had declined by 0.3 percentage points since 1994-95 because the equivalised disposable household income of the low income group grew by less than the income of the other groups. In contrast, the income share of people in the high income group increased by 0.7 percentage points. In conjunction with other indicators of income distribution, this suggests some possible rise in income inequality over the second half of the 1990s.(SEE ENDNOTE 1)

PRINCIPAL SOURCE OF INCOME

While households may derive income from a variety of sources, the principal source of income is the one upon which they are most reliant. For example, households may be reliant, in the short or long term, on government pensions and allowances such as income support payments made to people who are retired or unemployed, or people with disabilities and their carers.

While income is generally a good indicator of economic wellbeing, some households report extremely low and even negative income in the Survey of Income and Housing (SIH). While some households may under-report their incomes in the SIH, others may correctly report low levels of income if they incur losses in their unincorporated business or have negative returns from their other investments.

Studies of income and expenditure as reported in the 1998-99 ABS Household Expenditure Survey (HES) have shown that households in the bottom income decile and with negative gross incomes tend to have expenditure levels comparable to those of households with higher income levels, indicating that these households have access to other economic resources, such as wealth, which are not measured in the SIH, or that the instance of low or negative income is temporary, perhaps reflecting business or investment start up.

Therefore most households in the bottom decile are unlikely to be suffering extremely low levels of economic wellbeing, and income distribution analysis may lead to inappropriate conclusions if such households are included. For this reason, people in the lowest decile have been excluded from the low income group.

Wages and salaries were the principal source of income for 57% of Australian households overall in 2000-01. Government pensions and allowances were the main source for a further 28% of households.

In 2000-01, government pensions and allowances were the principal source of income for three-quarters (76%) of the households in which people from the low income group lived. In contrast, wages and salaries were the principal source of income for the majority of households with people in the middle and high income groups. Households in the high income group were more likely to report wages and salaries as their principal source of income than those in the middle income group (88% and 74% respectively).

Principal source of income often changes over life cycle stages. In 2000-01, 71% of households with a reference person aged 65 years or over reported government pensions and allowances as their principal source of income. Reflecting their much higher participation in the labour force, 77%of households where the reference person was aged 25-34 years reported wages and salaries as their principal source of income, with only 15% reporting government pensions and allowances.

HOME OWNERSHIP

Housing costs are an essential outlay from household income, and can represent a large proportion of a household's living expenses. For many Australian households, the progression through paying rent, paying off a home mortgage and finally owning a home is part of planning for the future. Households which own their own home without a mortgage have more of their disposable income available for the purchase and consumption of other goods and services. For example, while retired people tend to have low incomes, they have the highest rate of home ownership without a mortgage and, as a result, many are likely to have a higher standard of living than people on a similar level of income who are renting.

In 2000-01, just over half (52%) of low income households owned their own home without a mortgage, a higher proportion than for middle and high income households. This is largely due to the fact that, among people in the low income group, 44% were living in couple only households, with the reference person aged 65 years or over, or lone person households aged 65 years and over. These households had a very high rate of home ownership without a mortgage in 2000-01 (85% and 72% respectively).

LIFE CYCLE STAGES
The income received by households also partly reflects the life stage a household has reached. Income for younger people, in particular, generally rises as they gain more work experience. Household income may fall after children are born if a parent leaves the labour force or shifts from full-time to part-time employment. Household income may peak when children living in a household are contributing income. In subsequent stages of the life cycle, household income may reduce as individuals move into retirement. At each stage, equivalised income will vary, depending not only on the total income received by the earners in the household, but also on the size and composition of the household....LONE PERSON HOUSEHOLDS
In 2000-01, people living alone had a relatively low average equivalised disposable income of $388 per week and accounted for one-third (33%) of households in the low income group. Among people living alone, income varied by age. For example, the average income of those aged less than 35 years (331,500 people) was $513 per week, much higher than the average income of $274 for those aged 65 years and over (694,500 people). However, the proportion of older lone persons owning their home without a mortgage was 74%, in contrast to only 7% of people aged less than 35 years living alone.

The principal source of income for almost half (47%) of lone-person households was government pensions and allowances in 2000-01. This largely reflected the fact that a high proportion of people aged 65 years and over, who were living alone, were dependant on government pensions and allowances (79%).

In 2000-01, households comprising couples without children accounted for 33% of high income households and 28% of low income households. The strong representation in these two income groups reflects the life cycle stages where couples tend to be living without children. Households comprising younger couples without children, where the reference person was aged less than 35 years, had a very high average level of equivalised disposable household income in 2000-01, at $692 per week. This reflected the high average number of earners (1.8) in these households. In contrast, the average equivalised income of older couple only households, where the reference person was aged 65 years or over, was $321.

Overall, the total group of households comprising couples without children is dominated by older couples. Consequently, about a third (32%) of couple only households reported government pensions and allowances as their principal source of income. Further, in 2000-01, over half (54%) of the couple only households owned their home without a mortgage; although the rate varied widely from 7% of younger couples to 89% of older couples. ...COUPLE HOUSEHOLDS WITH CHILDREN
In 2000-01, there were almost 1.7 million households made up of a couple with dependant children only. They were the most common type of household in the middle income group (accounting for 30%). Their average equivalised disposable household income varied with the age of the eldest dependant child, from $434 per week for households where the eldest child was aged 5-14 years to $481 for those households where the eldest dependant child was 15-24 years. (SEE ENDNOTE 1)

The rate of home ownership of these households reflected their life cycle stage, with over a half (58%) owning their house with a mortgage in 2000-01. Around one-fifth (21%) owned their home without a mortgage. ...ONE-PARENT HOUSEHOLDS
There were over half a million households comprising a lone parent with dependant children. People living in these households received the lowest average equivalised disposable household income ($329 per week) for any type of household in 2000-01.

Over half (53%) of one-parent households were reliant on government pensions and allowances as their principal source of income. Consistent with this, the average number of earners was low, at 0.7 per household, compared with an average household size of 3.0 people. The proportion of this type of household, as a proportion of total households, increased from 6% to 7% between 1994-95 and 2000-01.ENDNOTES